End of the bull run? FPI selling in August highest in 2017 so far

Palak Shah Mumbai | Updated on January 09, 2018


Foreign investors offload $1.2 billion worth of net long index futures positions

Foreign portfolio investors (FPIs) have embarked on their largest selling spree in India’s equity market in 2017 so far.

FPIs offloaded around $1.2 billion worth of net long index futures positions over the past one month, data from ProAlpha Systematic Capital Advisors, a quantitative analysis fund, showed. Further, the week ended August 16 was the first in the past 31 weeks to have witnessed net FPI outflow of funds from stock markets, indicating that all is not well with the current bull run, experts said.

In the cash segment, FPIs have sold stocks worth more than ₹11,700 crore (over $1.8 billion) in the current month so far, which is the highest selling figure since November 2016.

Domestic institutional investors (DIIs) have absorbed this FPI selling entirely, with stock purchases of ₹11,000 crore this month so far, which has prevented the markets from falling significantly.

Yet, FPI selling has weighed on the markets, with benchmark indices Nifty and Sensex down around 3.8 per cent from their life-time high levels hit in July. Last month saw a near 6 per cent gain in key indices on the back of short covering, mainly in single stock futures held via P-notes.

In July, most top global indices remained either flat or slipped into negative territory compared to the previous month.

“With FPIs not in the mood to buy, it remains to be seen as to how long domestic institutions can hold the fort,” said Rohit Srivastava, fund manager, Sharekhan-BNP Paribas. “There are clear signals of a reversal in trend in August as FPIs seem to have lost confidence in the markets. Earnings are not catching up, and the global scenario is weak.”

Data from Sharekhan-BNP Paribas show that FPIs have cut over 90 per cent of their index futures net long positions from 2.02 lakh contracts in June to just 15,000 contracts as on date.

According to Rishi Kohli, Managing Director, ProAlpha, there is ample room for the Nifty and the Sensex to move down further.

“A further decline in the markets seems to be in the offing. Anyway, not all was well with the bull run as valuations were at historically high levels. Fund flows even in other emerging markets seem to be crippled.”

The global bull market in equities, which was built on the narrative of a revival in US demand and economic pick-up due to Trump’s election victory, seems to be faltering now. Top Wall-Street and corporate honchos voluntarily dropping out of Trump’s advisory council and a looming US debt celling deadline in September are the key events worrying large investors.

Published on August 21, 2017

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